Associated Cement Companies (ACC) has closed a double-barreled offer of $60 million convertible bonds and $40 million GDRs, following recent equity-linked offers from Reliance Energy and Indian Hotels.
The book-build took place overnight on Monday with investors covering the books five times. The convertible is priced at par and has a maturity of five years and one day, with a 1% coupon and redemption at 107.936%. The yield-to-maturity is priced at 2.5%, the bottom end of a marketed range of 2.5% to 3%.
The conversion premium priced at the top of a 30% to 35% marketed range for a conversion price of Rs374.2 ($8.30). The reference price, taken at the close of trading on Monday, is Rs277.35. By comparison, Reliance Energy's recent deal featured a zero coupon, 30% conversion premium and 2% yield-to-maturity.
Underlying assumptions include a bond floor of 86.6%, implied volatility of 42% and theoretical value of 101.4%, based on a credit spread of 225bp over Libor, a 0.9% dividend yield and 100-day volatility of 45%.
The deal has a three-year hard no call and no soft call, which is the same structure used by Gujarat Ambuja Cements, a 14.4% shareholder in ACC, in its convertible issue of January 2001.
The bonds are convertible into ACC's ordinary shares listed on either the Bombay Stock Exchange or the National Stock Exchange, or into the GDRs which will be listed in London. Half of the convertible was bought by European investors, 25% by Asians and 25% by offshore US investors under the SEC's Regulation S exemption.
Appetite for the convertible was fairly consistent but the pricing on the GDRs proved too rich for some investors. The $40 million offer included a $5 million greenshoe and was issued at Rs280.5, which actually represents a rare premium for an Asian depositary receipt offer. Because ACC is up against its foreign-ownership limit non-Indian investors cannot buy the company's ordinary shares except from other non-Indians. This led the bookrunners, Citigroup, to believe there was sufficient demand to justify a modest 1% premium.
By geography the GDR split 60% Europe, 30% Asia and 10% offshore US.
ACC is one of India's biggest cement companies, with an annual production capacity of 17 million tonnes. The proceeds of the double-barreled offer are being used to fund its acquisition of Bargarh Cement through the state government of Orissa's privatization programme, which was temporarily financed with short-term money. It will also help modernize the Chaibasa cement plant and build a 15MW captive power plant at the site.